Bonn Predicts 1980 Will Be Not So Gloomy

By Bradley GrahamBy Bradley GrahamJanuary 31, 1980

Never mind high oil prices, jitters about a world recession or a new cold war, West Germany today presented an economic foecast for itself that envisages "good" -- if slower -- growth in 1980 and a relatively low inflation rate.

In its annual economic report, the Bonn government projected a growth rate of 2.5 percent. That is down almost two percentage points from last year -- a sign that steeper energy costs and a general deceleration of world economic activity have put a brake on the German economic machine. But it is nonetheless a brighter target than the gloomy average forecast for the industrialized world.

Bonn also today set an inflation goal of 4.5 percent for 1980, up slightly over last year, and predicted that the West German unemployment rate would remain under 4 percent.

The West German forecast contrasted sharply with the struggling efforts of most of the earth's industrialized economies just to avoid negative growth this year and to cope with double-digit inflation rates. Indeed, the Bonn government's targets are more optimistic than those being offered by a large majority of German economic analysts, who are estimating a growth rate of less than 2 percent and an inflation rate around 6 percent.

The government itself delayed release of its report by a week or two to have extra time to consider the possible effects of last December's OPEC price hikes and new uncertainties caused by the Soviet invasion of Afghanistan. The final forecast indicates that government planners have turned a bit more doubtful within the past month, since one month ago senior officials had been predicting a growth rate of around 3 percent.

West German Economics Minister Otto Lambsdorff told journalists today that the government report was not "exaggeratedly optimistic." He also said that West Germany did not expect a world economic recession this year.

According to its reports, the Bonn government's central economic aim in the coming year -- which happens to be a national election year -- will be to counter price increases and slow inflation towards the end of the year. Although the average rise in consumer prices in 1979 was a relatively low 4.1 percent, that average masks the fact that West German inflation has been accelerating in recent months, topping 6 percent -- which for West Germany is alarmingly high.

A tight monetary policy has been the chief lever of the government's anti-inflationary efforts and is expected to continue to be. But the government indicated today that fiscal policy will also concentrate on reducing the rate of spending growth in order to keep the already large federal budget deficit from growing.

One reason for the continued emphasis on restraint here is the threat of an explosion in wage costs in 1980 Spurred by the recent inflation surge, West Germany's two largest unions have already put forward unusually high wage demands asking for between 9 and 10.5 percent. The government's economic projections, however, are based on the assumption wage costs will increase instead by an average of around 6 percent.